Question

bark company is considering buying a machine for $240,000 with an estimated life of ten years and no salvage value. the straight-line method of depreciation will be used. the machine is expected to generate net income of $6,000 each year. the cash payback period on this investment is

Answer 1

The cash payback period is the amount of time it takes for the initial investment to be recovered through the net income generated by the investment.

The annual depreciation expense using the straight-line method would be $24,000 ($240,000 total cost / 10-year life).

Therefore, the annual net cash flow (income minus depreciation) would be $30,000 ($6,000 net income + $24,000 depreciation).

To find the cash payback period, we divide the initial investment by the annual net cash flow:

$240,000 ÷ $30,000 = 8 years

Therefore, the cash payback period on this investment is 8 years.